Utilities funds were the star performers of 2011

0
12

BOSTON (AP) — Boring and big were beautiful in 2011. The top-performing stock mutual funds of the year invested in dividend-paying companies whose stocks typically are less volatile than the market as a whole.

Special recognition goes to mutual funds that invest in utilities stocks. Seven of the year’s top 10 U.S. stock funds were utilities sector funds, including top-ranked ProFunds Utilities UltraSector, which returned nearly 26 percent. Two among the top 10 specialize in stocks of drug makers, another area of the market where dividends are common.

Each of the top 10 posted a return greater than 16 percent. That’s standout performance in a year when the Standard & Poor’s 500 index ended almost exactly where it started. Including dividends, the index finished with a 2.1 percent return. The average result among the thousands of U.S. stock mutual funds that Morningstar tracks was a 2.7 percent loss.

It was a rough ride, highlighted by a steep mid-summer decline amid political wrangling over raising the government’s debt ceiling, and S&P’s downgrade of its triple-A credit rating. Stocks rallied late in the year as U.S. economic news improved, offsetting disappointment as Europe struggled to contain its debt crisis.

Through it all, utilities and pharmaceutical stocks proved their worth. They’re typically stable in good times and bad. That’s because there’s a constant demand for electricity and natural gas, as well as medications, no matter how the economy is faring.

Most of the top 10 funds are small, with less than $100 million assets, and each specializes in one sector of the market. But within the top two-dozen funds, there were a handful that pursued broader strategies, typically with an emphasis on dividend-paying stocks. Among funds with at least $5 billion in assets, top performers included Federated Strategic Value Dividend (SVAAX), which returned 14.5 percent, and Vanguard Equity-Income (VEIPX), with 10.6 percent.

Bigger companies are more reliable dividend payers, and last year’s results for mutual funds that pursued dividend strategies were a complete reversal from 2010. That year, the market gained 13 percent, with a 15.1 percent return including dividends. The top-performing funds of 2010 specialized in small-cap stocks. During rallies, it’s typically the smaller stocks that perform best.

Below are the top-performing U.S. stock funds of 2011, as tracked by Morningstar. The list excludes funds that don’t have retail share classes designed for individual investors.